How to Explain Capitalization Rate

Video Transcript

"So how to explain capitalization rate. Well a capitalization rate is really just a ratio and it is a ratio of your income over the value so if you take the income divided by the value you will find out what your capitalization rate is. When you're looking at capitalization of say a company you will want to see what they are producing, how much income do they have, what are they making every year as income and many times when you look at a stock report for example your capitalization rates have been calculated for the quarterly earnings. You'll see what earnings the company has had per share. And really what that is, is just taking the income that the company has made and you have taken the overall value of the company, what is their perceived value, what is their equipment worth, what are their assets worth, the company as a whole and then you have taken that value and you are taking the income and dividing that by the value of the company and you are going to get a number. So when you are looking at a report say for example on television and you see the value of a stock being put out there the capitalization rate has been figured out. They figured out the ratio of the income over the value, broken that out into the many thousands or millions of shares that may be held with that company and they have given value per share or the earnings per share for that company. So capitalization rate is just a really another way of saying income divided by the value."